Credit Score Calculation

The way the different credit agencies calculate your scores seems to be some sort of magic voodoo that the rest of us can only guess at. At the moment I am trying to quickly increase my score by a very small margin as I am very close to qualifying for much better mortgage opportunities and am about to purchase a home.

I have good bit of cash to use for this. Our Broker has said that the only significant thing bringing down my score is my debt to available credit ratio. Too close the limit on the credit cards I have. My plan was to put a good portion of my available cash into the cards in order to reduce the ratio enough to change my score. The rest I need to keep for closing costs.

So, the information I have found online suggest that it is only the overall ratio that is important, not the ratio on individual cards, while my Broker thinks the opposite (though this is not his area of expertice). Do any Dopers out there know which it is? If it is the former, then I will dump the cash onto the highest interest rate card, while if the later I will distribute it among several.

Also, if it is the overall ratio that is important I could increase the denominator by getting another card with high available credit and not using it, but I know that newer credit isn’t good for your score and too many cards aren’t good for your score either. Anyone have thoughts on whether this would work or not?

Lastly, none of this does any good until it gets reported to the credit agencies. The Broker suggested requesting that the credit card report my current standing immediately rather than waiting until their standard time. Has anyone had any luck with this? Does anyone know how long after the changes are reported that the score will change?

Thanks. Either way I should be able to get the place, but this might make thousands of dollars of difference in how much it will cost me.

If your debt to limit ratio is all your worried about at the moment, I would pay down the cards evenly. Well, not evenly, but try to get get them so that each one is at the same ratio by itself. Also, you may want to call the creditors and see if your limits could be raised.
Remember, if you’re just looking for a small margin, don’t let the creditors pull your report, the inquiry may lower your score just a hair.

Why? This is my question. Do they look at each card as my Broker says or is it as everywhere else I have looked and only the overall ratio? If it is the second and I distribute the cash as you say I will be shooting myself in the foot by keeping higher balances on the larger interest rate cards.

They may factor into your score:

  1. Your % available on any given card.
  2. Your overall % available.

You want to have no more than 25% utilization overall or on any card.
Both factors count!
If the algorithm has pigeon-holed a consumer into certain “deadbeat” categories, % utilization doesn’t have much effect on that consumer’s score, but I do not believe that applies in your case.

Have you considered calling your card banks and asking for a limit raise? If you’re good at paying on time - and also good at paying them interest - they will probably do it. I’ve done it several times without problem.

Note: This plan involves NOT spending more once the limits are raised!

Here is a good basic explanation of the FICO scoring model: http://www.myfico.com/Offers/myFICO_UYCS%20booklet.pdf

Here is another good guide: http://financialplan.about.com/od/creditreportsandscores/a/ImproveFICO.htm

If it is purely about the credit cards being too close to their limit, there is another approach. You could ask the creditors to raise the limits. Of course, then you might be tempted to use the credit. On preview, ZipperJJ beat me to the punch.

Thanks for the suggestions on limit raising. Temptation is not a problem. I am not at my limits as it is, it is just that the ratio is not quite as good as it could be. I will read over the links you posted, Gfactor. Hopefully that will answer my questions.

Few lenders would do this, but make ABSOLUTELY SURE that when you call for higher limits, the bank does NOT do a “hard pull” inquiry against your report.
They need to make the kind of inquiry that shows up as “account review” or it could add inquiries to your report, potentially messing things up.
9 times out of 10 they won’t, but a couple of lenders do that any time YOU request a limit increase as opposed to them automatically increasing it.

How would I go about insuring this? When I call them, what would I say?

Something like, “Hi, can you raise my credit limit without looking at my credit report?”, or what?

“If I ask for a credit line increase, will I wind up with one of those hard inquiry things that shows up on my credit report, or will it be one of those account reviews that only I get to see when I ask for my own report?”

If the individual you query doesn’t sound very sure of themselves as they answer, escalate to a supervisor.